FINRA Sanctions MetLife Securities, Inc. $25 Million for Negligent Misrepresentations and Omissions in Connection With Variable Annuity Replacements

Largest FINRA Fine Relating to Variable Annuities

WASHINGTON–(BUSINESS WIRE)–The Financial Industry Regulatory Authority (FINRA) announced today that
it has fined MetLife Securities, Inc. (MSI) $20 million and ordered it
to pay $5 million to customers for making negligent material
misrepresentations and omissions on variable annuity (VA) replacement
applications for tens of thousands of customers. Each misrepresentation
and omission made the replacement appear more beneficial to the
customer, even though the recommended VAs were typically more expensive
than customers’ existing VAs. MSI’s VA replacement business constituted
a substantial portion of its business, generating at least $152 million
in gross dealer commission for the firm over a six-year period.

Replacing one VA with another involves a comparison of the complex
features of each security. Accordingly, VA replacements are subject to
regulatory requirements to ensure a firm and its registered
representatives compare costs and guarantees that are complete and
accurate. For investors in New York, a firm also must adhere to the
disclosure requirements set forth in Regulation 60 (Reg. 60).

FINRA found that from 2009 through 2014, MSI misrepresented or omitted
at least one material fact relating to the costs and guarantees of
customers’ existing VA contracts in 72 percent of the 35,500 VA
replacement applications the firm approved, based on a sample of
randomly selected transactions. For example,

  • MSI represented to customers that their existing VA was more expensive
    than the recommended VA, when in fact, the existing VA was less
  • MSI failed to disclose to customers that the proposed VA replacement
    would reduce or eliminate important features in their existing VA,
    such as accrued death benefits, guaranteed income benefits, and a
    guaranteed fixed interest account rider; and,
  • MSI understated the value of customers’ existing death benefits in
    disclosures mandated by Reg. 60.

Brad Bennett, FINRA Executive Vice President and Chief of Enforcement,
said, “Variable annuities are complex and expensive products that are
routinely pitched to vulnerable investors as a key component of their
retirement planning. Firms engaging in this business must ensure that
the information on the costs and benefits of these products provided to
customers is accurate, and that their registered representatives are
sufficiently trained to understand and explain the risks and complex
features of what they are selling. These obligations take on even
greater importance when a significant part of a firm’s marketing effort
involves switching customers out of existing annuities.”

FINRA also found that MSI failed to ensure that its registered
representatives obtained and assessed accurate information concerning
the recommended VA replacements, and did not adequately train its
registered representatives to compare the relative costs and guarantees
involved in replacing one VA with another. MSI’s principals did not
consider the relative costs and guarantees of the proposed transactions.
The firm’s principals ultimately approved 99.79 percent of VA
replacement applications submitted to them for review, even though
nearly three quarters of those applications contained materially
inaccurate information.

FINRA further found that MSI failed to supervise sales of the GMIB
rider, the firm’s bestselling feature for its VAs. The rider was
marketed to customers (many of whom were already holding MetLife
annuities) as a means of providing a guaranteed future income stream.
The GMIB rider is complex and expensive—annual fees during the relevant
period ranged from 1 percent to 1.5 percent of the VA’s notional income
base value. A frequently cited reason for MSI’s recommendation of VA
replacements was to allow a customer to purchase the GMIB rider on the
new VA contract. Nevertheless, MSI failed to provide registered
representatives and principals with reasonable guidance or training
about the cost and features of the rider.

In addition, FINRA found that since at least 2009, firm customers have
received misleading quarterly account statements that understate the
total charges and fees incurred on certain VA contracts. Typically, the
quarterly account statements misrepresented that the total fees and
charges were $0.00 when, in fact, the customer has paid a substantial
amount in fees and charges.

In settling this matter, MSI neither admitted nor denied the charges,
but consented to the entry of FINRA’s findings.

Investors can obtain more information about, and the disciplinary record
of, any FINRA-registered broker or brokerage firm by using FINRA’s
BrokerCheck. FINRA makes BrokerCheck available at no charge. In 2015,
members of the public used this service to conduct 71 million reviews of
broker or firm records. Investors can access BrokerCheck at
or by calling (800) 289-9999. Investors may find copies of this
disciplinary action as well as other disciplinary documents in FINRA’s
Disciplinary Actions Online database
. Investors can also call FINRA’s
Securities Helpline for Seniors
at (844) 57-HELPS for
assistance or to raise concerns about issues they have with their
brokerage accounts and investments.

FINRA, the Financial Industry Regulatory Authority, is the largest
independent regulator for all securities firms doing business in the
United States. FINRA is dedicated to investor protection and market
integrity through effective and efficient regulation and complementary
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information, please visit


Financial Industry Regulatory Authority (FINRA)
(202) 728-8464
(202) 728-8379